Wednesday, February 26, 2014

No, Sorry, There's Not Ever Going to Be Another Cold War with Russia ... Russia poses little if any geopolitical risk to the United States or its vital interests. It is at best an irritant on the margins. Nowhere is this better illustrated than by the fact that almost the entirety of Russia's foreign policy is tied up with trying to solidify dominant relationships with the countries ringing its borders, almost all of which were part of the Soviet Union, their so-called 'near abroad'.

President Vladimir Putin's order on Wednesday for soldiers to be ready for war games near Ukraine was the Kremlin's boldest gesture yet after days of sabre rattling since its ally Yanukovich was ousted at the weekend.
Moscow denied that the previously unannounced drill in its western military district was linked to events in its neighbor but it came amid a series of increasingly strident statements about the fate of Russian citizens and interests.

It's very strange to downgrade the potential problems of a Russia obsessed with its near abroad, since the power games around that explain a lot of 19th century history and thus the lead-in to two world wars. And as Ms Palin pointed out, one of those borders is with Alaska!

Tuesday, February 25, 2014

A Wall Street Journal article explains the complicated politics of a western financial bailout for Ukraine --

Without Russian involvement, the politics of a bailout organized by Europe and the U.S. would become more complicated, since a big chunk of the bailout money would go toward paying Ukraine's gas bills to Russia.

That's indeed true, but just about every bailout in recent years has involved loaning countries money to repay to people outside the country -- bankers, bondholders, or indeed back to the countries delivering the bailout money. The same aversion to bailout money heading to Russia was previously seen for Cyprus. But what these reservations highlight is that bailouts are rarely foreign wise men providing cash in exchange for a package of reforms. It's foreign wise men making sure that their own loans get paid back.

Sunday, February 23, 2014

In the discussion over the current crisis in Ukraine, there are a number of references to an article by Timothy Snyder in the New York Review of Books. The article indeed provides a nice discussion of the complex character of the protests as well as the (former) government's strategy for portraying them. But things get a bit odder when Snyder presents what he sees as a real agenda of Russia in the broader game in the region:

The course of the protest has very much been influenced by the presence of a rival project, based in Moscow, called the Eurasian Union. This is an international commercial and political union that does not yet exist but that is to come into being in January 2015. The Eurasian Union, unlike the European Union, is not based on the principles of the equality and democracy of member states, the rule of law, or human rights.
On the contrary, it is a hierarchical organization, which by its nature seems unlikely to admit any members that are democracies with the rule of law and human rights. Any democracy within the Eurasian Union would pose a threat to Putin’s rule in Russia. Putin wants Ukraine in his Eurasian Union, which means that Ukraine must be authoritarian, which means that the Maidan must be crushed ... The Eurasian ideology draws an entirely different lesson from the twentieth century. Founded around 2001 by the Russian political scientist Aleksandr Dugin, it proposes the realization of National Bolshevism. Rather than rejecting totalitarian ideologies, Eurasianism calls upon politicians of the twenty-first century to draw what is useful from both fascism and Stalinism.

If true, this combination of fascism and Stalinism has chosen the ultimate Trojan horse for its conquest: a customs union. Or put another way, if you want a vision of a Eurasian future, imagine a customs man stomping "cleared" on a crate of Chinese goods at the Kazakh border -- forever. Because right now, that's all the Eurasian Union is: a 3 country customs union that has some cool geographic features (goods can move freely from the Chinese border to the EU border by rail). And even the people directly involved in it have a fairly cautious view of its scope:

The Customs Union’s website, for example, openly explains that it drafted its rules for economic integration with an eye on the practices of the European Union, and officials cite Nafta and other groupings as models.
Using this approach, the Customs Union has achieved modest success increasing trade between member states since its inception, a study by the Brussels-based Center for European Policy Studies found.
“Everybody is looking for at least regional regulation of these large markets,” Ms. Valovaya said. “We in Eurasia are doing it, South Americans are doing it, and the United States is doing it.”

Thursday, February 20, 2014

It's going to be an interesting year for the typical event where VIPs assemble to commemorate some past tragedy and proclaim that we are all so much wiser now and wouldn't let it happen again. 130,000+ dead in Syria. The decades-long human rights disaster in North Korea. Crises in the Sahel that are too low profile to merit the front pages. Anyway, here's European Commission President Jose Manuel Barroso from a few years ago commemorating the Prague Spring:

I understand that your memories from 1938 and 1968 years, when you were first betrayed and then abandoned, might lead you to distrust the effects of major continental events. But I hope you share my view that the European geopolitical landscape has changed considerably. Today, European history is not made by occupying superpowers and totalitarian political regimes. It is made by democratic countries that are free and equal. We should never lose sight that the project of European integration was a reaction against a continent suffering from wars and military occupations. Keeping peace and stability is also a central goal of a democratic Europe.

One thing the European Union might want to consider on their Ukraine sanctions list is that Vladimir Putin used an Irish Stock Exchange listed Eurobond to provide US$2 billion in financing to Ukraine on Monday -- one day before the government in Kiev decided to crack down on the protests. Sure, the timing may be a coincidence and closing off this particular bond may be a mere inconvenience, but sanctions are all about inconvenience.

Wednesday, February 19, 2014

It's odd that the initial handicapping on Hillary Clinton's presidential chances in 2016 is focused on possible baggage from Bill and not from the biggest miscalculation of her own time as US Secretary of State, namely the supposed reset of relations with Russia in 2009.

5 years later, with Ukraine in turmoil, Aleppo being barrel-bombed to oblivion, and the Kremlin no doubt working on reasons to say that there's nothing that can be done in Venezuela or North Korea, there's not much in the way of benefits from the policy.

Tuesday, February 18, 2014

Scottish First Minister and independence champion Alex Salmond is grappling with an inverse Groucho Marx problem: he does want to be in clubs that wouldn't have him as a member. As part of his pushback yesterday against one of those clubs -- sterling -- he said the following:

For example on Thursday George Osborne peppered his speech with references to Scotland as a “foreign country”. Let me be clear. For Scots whether independent or not, the rest of the UK will never be “foreign”. Indeed the Government of Ireland Act of 1948, negotiated after infinitely more difficult circumstances than we have, specifically states that Ireland is not to be regarded as a “foreign country”.

There's just one problem.

There is no such legislation as the Government of Ireland Act 1948.

The last such titled act was 1920, and it never took effect in the 26 counties. There is an Ireland Act 1949, which has content similar to what Salmond describes, but its context is hardly supportive of his point. From 1922, the Irish Free State had been whittling away at its UK dominion status, which required it to defer to London in matters of foreign affairs and defence along with acceptance of the British monarch as head of state and an associated status of Irish citizens as British subjects. Very little of this was left in practice by 1948 when -- in a decision attributed perhaps apocryphally to excessive consumption of alcohol at a state dinner in Canada -- the country formally declared itself a Republic.

With the fig leaf of Irish Dominion status now gone, the British government passed the above-referenced act to preserve the status of Irish people as non-foreign in the same way as other dominions (e.g. Australia), albeit no longer British subjects. The act also copperfastened Partition by making any change in status of Northern Ireland conditional on majority will in that entity, which was the de facto status anyway.

Thus Salmond's analogy is meaningless. Under the SNP proposal, the British monarch will remain the head of state. Thus there is no need to specify that citizens of a new republic can retain their ties to Britain, as was the case for Ireland. And far from being negotiated, the 1949 act unilaterally imposed constraints on Ireland's political future, which is one of the risks of departure from the union structures.

Ireland has various lessons for Scottish independence scenarios, not all of them favourable. But a minimal requirement is that the legislative history be correctly understood.

Sunday, February 16, 2014

Cyprus Mail -- The beginning of a dialogue aimed at strengthening relations and including the expansion of activities by Lebanese banks in the Cyprus market was announced yesterday by Central Bank Governor Panicos Demetriades, and his Lebanese counterpart Riad Salameh.
In a joint press conference held after a closed session, the two central bankers affirmed the intention for banking cooperation, in the form of expanding banking operations by Lebanese banks in the Cyprus market to include funding of business activity, investments, cooperation with Cypriot banks in issuing credit notes and letters of guarantee, and project financing.
“Lebanese banks can help restart the Cyprus economy and catalyse the country’s recovery,” Demetriades said.

Not mentioned: Lebanese banks bring a tradition of paying their depositors.

Mr Noonan [Irish Minister for Finance] also updated Mr McGrath on the valuations of the State’s investments in AIB, Bank of Ireland and PTSB. The 99.8 per cent holding in AIB is valued at €6.5 billion by the National Pensions Reserve Fund (NPRF), which manages the Government’s holdings in the banks. This follows an independent review by Goodbody Corporate Finance, as revealed last month by The Irish Times . The residual shares in AIB trade on the Irish Stock Exchange at 14.1 pence apiece, giving it a notional market value of €73.5 billion. This is based on the share buying by retail investors and has no bearing on reality.

One bigger question springing from this unusual case is whether any bank should be allowed to have shares trade on the stock market.

Saturday, February 15, 2014

In the photo (Anja Niedringhaus/Associated Press), Fatima Khan berates Assad regime officials about the fate of her son, British citizen Dr Abbas Khan, who went into the Syrian prison alive and came out dead.

Syria has added opposition delegates at peace talks in Geneva to a "terrorist list" and seized their assets, including the house of one of them, anti-government negotiators and a diplomat said on Saturday.
The opposition delegation only learnt of the decision when a copy of the Justice Ministry decision was leaked this week to the opposition website www.all4syria.com, the sources said.
The memorandum, issued by the Justice Ministry, says the assets had been frozen under a 2012 anti-terrorism law.

Notice the well-accessorized Assad official on the right. Any chance of some of that bling being seized on her next trip abroad?

Friday, February 14, 2014

Could you marry a man who isn't your intellectual or professional equal? Sure. But the likelihood is that it will be frustrating to be with someone who just can't keep up with you or your friends. When the conversation turns to Jean Cocteau or Henrik Ibsen, the Bayeux Tapestry or Noam Chomsky, you won't find that glazed look that comes over his face at all appealing ... Not all women want marriage or motherhood, but if you do, you have to start listening to your gut and avoid falling for the P.C. feminist line that has misled so many young women for years. There is nothing incongruous about educated, ambitious women wanting to be wives and mothers.

Helmer. To desert your home, your husband and your children! And you don't consider what people will say! Nora. I cannot consider that at all. I only know that it is necessary for me. Helmer. It's shocking. This is how you would neglect your most sacred duties. Nora. What do you consider my most sacred duties? Helmer. Do I need to tell you that? Are they not your duties to your husband and your children? Nora. I have other duties just as sacred. Helmer. That you have not. What duties could those be? Nora. Duties to myself.

Monday, February 10, 2014

It's worth reading the entire judgement of the German Constitutional Court on the ECB's Outright Monetary Transactions (OMT). The findings are a lot more damning than the headline version "German court refers OMT to ECJ" would have you believe. Among the points is as below which reveals that there were issues of philosophy as much as law in play --

The OMT Decision aims to neutralise spreads on government bonds of selected Member States of the euro currency area which have emerged in the markets and which adversely affect the refinancing of these Member States ... According to the European Central Bank, these spreads are partly based on fear – declared to be irrational – of investors of a reversibility of the euro. However, according to the convincing expertise of the Bundesbank, such interest rate spreads only reflect the scepticism of market participants that individual Member States will show sufficient budgetary discipline to stay permanently solvent. Pursuant to the design of the Treaty on the Functioning of the European Union, the existence of such spreads is entirely intended. ... In any case, according to explanations given by the Bundesbank, one cannot in practice divide interest rate spreads into a rational and an irrational part.

That last clause is critical. If the German perspective is that a financial market which embodies some irrationality is beyond thinking about in terms of interventions which might allow it to be more rational, then the whole policy stance towards those markets is going to be very different than if you think there are some selective interventions that can calm them down. Let's hope that the Eurozone financial crisis is close to resolution by the time the European Court of Justice makes a decision, because it's not at all clear what way will it go.

Friday, February 07, 2014

In 2002, the Wall Street Journal editorial page uncorked the phrase "lucky duckies" to refer to people whose income was too low to incur federal income tax. The editorial set off a meme that has mutated several times since, including Mitt Romney's 47 percent speech, and the original phrase is constantly used on liberal blogs to ridicule conservatives who think those on low incomes somehow have it good.

Well, 12 years after the phrase was first used, there's a new set of lucky duckies, and this time it's been created by liberal scribes, with Paul Krugman in the lead. Today's there's joint posturing by Krugman and David Weigel at Slate over what they label "CBOghazi," a supposed botching by the media of the Congressional Budget Office (CBO) estimate that the Affordable Care Act ("Obamacare") will reduce the labour force by the equivalent of 2 million full time workers.

But why is this self-satisfaction warranted? By Krugman's own admission, the reduction in employment comes disproportionately from the lower paid, who will choose to work less because of the incentives created by the health insurance subsidies. As he tells it, these people henceforth become lucky duckies, free to spend time with their kids or pursue their dreams. But actual economists who have studied employment and poverty would have a different set of questions:

How will these families replace the income lost from reduced hours of employment?

Will anyone in the household have a job after labour supply has been reduced?

If the person is not in work, what are they doing? Education, training? What are their opportunities for upward mobility since they are no longer in employment?

Besides being tucked in at night, are the children in the house better off in terms of current and future prospects when there's less paid employment in the household?

In short, serious respect for expertise -- which Krugman is always demanding when it comes to macroeconomics -- would require that the CBO estimates be embedded in a deep understanding of the economics of employment and poverty. But a lot of people who think they know better have simply bought into a narrative that presents this employment shift as an unalloyed good thing -- a new class of lucky duckies -- and want everyone to shut up already.

UPDATE: One final word on this. In Krugman's many posts on the CBO estimates, which are marked by repeated declarations of victory, he never once acknowledges that the CBO methodology is based on the work of Casey Mulligan, who uses precisely the same techniques for analyzing incentives in healthcare as he does for other government policies -- which Krugman has previously ridiculed.

FINAL UPDATE (15 February): If you were relying solely on Krugman for an understanding of what is going with the CBO estimates, you'd be mystified by this post attacking Casey Mulligan, since as noted above, he has never previously discussed any role that Mulligan's methodology had in the CBO estimates. Now he's being acknowledged, but only in a backhanded way disputing how much of a role he had.

Thursday, February 06, 2014

Paul Krugman today, quadrupling down on the claim that any reduction in working hours resulting from the Affordable Care Act ("Obamacare") incentives is a good thing:

Labor compensation would fall less, around 1 percent, because the reduction in hours would be skewed toward the less well paid ... When workers choose to work less, by contrast, they presumably do so because they gain something that is, to them, worth more than the foregone income: more time with their children, an earlier retirement, etc.

Isn't America a remarkable place, that so many low paid workers were already just one tilt in the incentive structure away from being able to spend more time with their children, retire earlier, etc!

In the FT, Tony Blair's former chief of staff and chief negotiator on the Good Friday Agreement, Jonathan Powell, runs through the bizarre border scenarios that could result from Scottish independence and the UK leaving the EU -- travel controls whether leaving Newry or Larne! -- and concludes:

Of course, this may be academic. It still looks highly probable that the people of Scotland will vote to remain in the union and Scots will accept the solution on identity found in the Good Friday agreement: nationalists and republicans can be Irish and still part of the UK. Trying to be Sinn Féin, or “Ourselves Alone”, in Scotland, and raising new borders makes very little sense in the modern world.

That's fine, but too much of his analysis and that conclusion is pegged to what happens in Scotland. The real damage is in the UK EU referendum vote, given the significant risk that a timid David Cameron will allow the process to be colonized by nutters. And that prospect -- not the doomed Scottish referendum -- is where Ireland and Scotland will have to take another look at their options as European nations.

You wouldn't know it from his tone, but it has not been a good week for Paul Krugman's blog or the legions that link to it. First there was a post playing off a widely cited research finding that a substantial part of the failure of US employment to return to its pre-2007 pattern was due to demographic factors as opposed to the cyclical suspects. Part of his refutation is to do his own back of the envelope calculations which conclude --

This would seem to suggest that around 40 percent of the decline is demographics, but the rest is cyclical, and that we’re still far below full employment.

In all the tirades about austerity over the last few years, in all the complaints about Republicans blocking worthy initiatives, in all the sighs about weak monthly jobs reports, did his readers know that all that only applied to little over a half of the employment shortfall during that time? And that nearly half was simply voluntary departures from the labour force associated with ageing?

Then there's that Congressional Budget Office report from yesterday showing that the Affordable Care Act ("Obamacare") will reduce total labor supply by the equivalent of 2 million full time jobs. Of course there's a solid explanation for that -- fewer people are locked to their jobs through need for health insurance. But Krugman actually doubles down on the logic and produces a model where labor supply before Obamacare was too high, so this reduction in employment could actually be efficient.

So again, after years of ridiculing any explanation for slow job growth that didn't involve austerity or insufficiently lax monetary policy, all of a sudden, not only could employment be falling (relative to previous trend) because of incentive effects, but it might even be a good thing that it does so!

One final thing, The other part of his argument against the demographic calculations above is that the researchers are led to an implausible assumption that the economy was operating above potential for a considerable period. Yet as of this week, it appears that government policies can have such strong incentive effects that people might previously have been working too hard.

It might cause whiplash for some in the liberal economics comfort zone, but there actually are reasons to mention the word "supply" outside of ritual denunciations of alleged believers in Say's Law.

Wednesday, February 05, 2014

Corriere della Serra has an excellent photo slideshow on the history of Alitalia, whose latest incarnation (the Berlusconi-era cherry-picked version) appears headed for de facto sale to Etihad after failing to achieve financial viability.

Among the thing one learns from the slideshow is that the original airline was financed with British government money invested through what would eventually become BA, and that a condition of the money (which was part of a complex war reparations deal) was that the company use British aircraft in its fleet. In the foreground of the 1940s fleet photo above is an Avro Lancaster, one of the heavy bombers from World War II, adapted for civil aviation.

Tuesday, February 04, 2014

Reuters -- British insurer RSA has appointed former Royal Bank of Scotland boss Stephen Hester as its new chief executive with immediate effect, replacing Simon Lee who quit in December.
Hester, ousted from state-backed RBS last June by Britain's finance ministry, will take on an insurer that is reeling from an accounting scandal at its Irish business that left it with a 200 million pound ($325.89 million) hole in its finances.

Since RBS was ruined in part by its Irish operation, Ulster Bank, Hester has clearly become the go-to guy when the phrase "problematic Irish unit" appears in the corporate news.

Sunday, February 02, 2014

Greek newspaper Ekathimerini on the country's long to-do list to please its official lenders --

OECD official Anna Thiemann, who was the project manager for the organization’s competition assessment review in Greece, told Sunday’s Kathimerini that Greeks would be able to see the positive effect of the interventions within five years.

So by the 2020s, the benefits will be flowing! That's an honest assessment, but remember these same type of reform were being sold to Greece, Ireland, and Portugal at earlier stages of their bailouts as being so fast-acting, they could offset the effects of austerity.